Telecoms regulator Ofcom has this week announced that it will proceed with its plan to separate legally the rest of BT from its network division, Openreach, which runs the UK’s broadband infrastructure, saying that Openreach should become a distinct company within the BT group.

BT claimed proposals it made to Ofcom, in response to Ofcom concerns laid out in July, were “fair and sustainable”, but Ofcom said BT had not gone far enough to address its ability to favour its retail business when making investment decisions in Openreach.

Following a strategic review earlier this year, Ofcom has resisted calls to split Openreach off entirely, which telecoms rivals have sought. Whilst legal separation goes beyond the current ‘functional separation’ model, and could pave the way for complete structural separation, achieving it will require Commission support and is likely to face fierce resistance from BT. Ofcom may still therefore opt for an improved voluntary offer from BT. It remains to be seen if today’s announcement will make it more forthcoming.

Frontier has advised telecommunications providers on the economic and regulatory issues surrounding vertical separation in telecommunications as a means of promoting retail competition and investment.